Owners Denied Back Rent Adjustment Payments

Facts: The owners of four multifamily housing sites that receive Section 8 assistance claimed that a South Dakota public housing authority (PHA) violated their housing assistance payments (HAP) contract.

The owners claimed that the PHA improperly reduced the annual adjustment factors applicable to Section 8 sites by .01 for non-turnover units, which violated the terms of their HAP contracts. The owners also claimed that the PHA didn't submit rent comparability studies, also in violation of the terms of their HAP contracts. The owners specifically argued that under their HAP contracts, the PHA must adjust contract rents automatically.

In June 2010, the owners submitted to the PHA a request for rent increases retroactive to Jan. 3, 2001, through 2010. The PHA contended that the owners are precluded from recovering retroactive rent increases for those years and, therefore, denied their request.

The owners sued the PHA in federal district court, asking for back payment for the rent increases.

Decision: The federal district court ruled against the owners.

Reasoning: The court concluded that language stating that contract rents will be adjusted on the anniversary date of the contract “upon request from the owner” requires that the owner request such rent increases from the PHA as a condition of receiving such increases. The court noted that the owners previously had submitted requests for rent increases, which were granted by the PHA. The court also noted that although the owners' HAP contracts do provide that rents will be adjusted on the contracts' anniversary date, permitting the owners to retroactively fulfill a condition to receiving rent increases runs counter to the contracts' requirements.

As far as the issue of the rent comparability studies is concerned, the court noted that no provision of the HAP contracts required the PHA to submit such a study. The owners sought reimbursement for the cost of comparability studies they conducted within the six-year limitation period, but the court concluded that the owners didn't present any evidence that they submitted any comparability studies within the six-year limitation period. The court indicated that, as a general rule, costs for comparability studies that owners may have conducted within the statute of limitations would be reimbursable as damages. But the court stated that it had not been presented with sufficient evidence to rule in the owners' favor.

• Cathedral Square Partners v. South Dakota Housing Authority, January 2011